South Africa’s Competition Commission has recommended that State-owned defence and aerospace group Denel be allowed to buy local aero engine company Turbomeca Africa (TMA). The recommendation was made to the Competition Tribunal. The commission announced this decision on late last month.

However, the approval comes with conditions. “The commission is of the view that the proposed transaction raises public interest concerns in that there are retrenchments that will occur as a result of this merger,” it stated in its press release. “In order to remedy these concerns, the commission recommends that this transaction be approved on condition that the number of merger- specific retrenchments is capped and that other merger-specific retrenchments are not effected before the expiration of two years from the implementation of the merger. The conditions also require that the merging parties adhere to the relevant Labour Relations Act processes if they proceed to effect the retrenchments.”

TMA is currently majority-owned by Safran Helicopter Engines (Safran HE), itself a completely owned subsidiary of France’s Safran S/A. According to the Safran HE website, TMA has three primary functions: support of operators, repair and overhaul, and the manufacture of engine parts. It employs more than 270 people and executes some 200 overhauls and repairs annually on three types of engines – the Arrius 2, the Makila 1 and the Turmo IVC. It supplies parts it manufactures to Safran, Rolls-Royce and Denel. It serves both the local and international markets. Denel’s own website states that TMA is “a company involved in the design, development, production and maintenance of gas turbine engines”.

The Turmo IVC powers the still widely used Puma helicopter (except for upgraded machines fitted with the more powerful Makila). The Makila 1 power plant is fitted to Super Puma helicopters and to South Africa’s Denel Rooivalk attack helicopter. According to Safran HE, some 1 700 Makila 1 engines have been produced (as well as about 500 Makila 2 engines). The Arrius 2 is an engine designed for small helicopters (weighing between 1.5 t and 3.2 t) and entered service in 1996. It is still in production and used on American, European and Russian helicopters, and, so far, more than 3 000 have been made, serving 430 customers in 60 countries.

Set up in 2002, TMA was hitherto owned 51% by Safran HE and 49% by Denel. The local company has been, the commission stated, jointly controlled by Safran HE and Denel. “The commission is of the view that the proposed transaction is unlikely to substantially prevent or lessen competition in the affected markets, since it is a move from joint to sole control of TMA by Denel.”

Denel, which falls under the Department of Public Enterprises, supplies both the local and global markets. It is active in various sectors of the aerospace and defence industry, including artillery, aviation, land vehicles, maritime, space and systems integration. It both manufactures and carries out maintenance, repair and overhaul activities. In the aviation sector, its only major local customer, the commission affirmed, is the South African Air Force (SAAF).

“Denel is of strategic relevance to national security in South Africa, since it provides defence, security and related technologies to the SAAF,” noted the commission. “In South Africa, it supplies (civil and military) helicopters to its only customer, SAAF, but, globally, it supplies numerous other customers.”